
§Identifying Systematic Risk: The Market Portfolio
§To determine how sensitive a stock is to systematic risk, we can look at
the average change in its return for each 1% change in the return of a
portfolio that fluctuates solely due to systematic risk (efficient portfolio)
§The market portfolio, which contains all stocks and securities, is a natural
candidate of the efficient portfolio
§In practice, the S&P 500 portfolio is used, assuming it is fully diversified